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TRUMP AND TARIFFS

July 25, 2018

TRUMP AND TARIFFS

There are many policy changes by government that can be based on the free market theories of classical economists such as Adam Smith of invisible hand and David Ricardo of scarcity renown, but as Stiglitz notes, those theories were hatched in European agrarian societies of the 18th and 19th centuries and have little relevance these days as applied to our rapidly developing post-industrial economies, including their long since discredited theories such as free trade that capitalists hang on to these days because it suits their selfish interests (even though free trade does not now and never existed except in theory).

One of such changes government can take is the adoption of tariffs, a process which Trump claims is necessary to fairly and equitably price the exchange of goods in international trade and reinstate the equalizers that bring the market back to free trade status when, truth be told, such adoption is arbitrary and ignores the real economic world of the law of comparative advantage, cost differentials, financial availability, skilled labor resources, varying tax and currency and environmental requirements and many other factors going into the pricing of goods for export. Arbitrary application of tariffs solve nothing since, among many other reasons, our trading partners have advanced their abilities to export at uneven paces. Thus Tanzania does not have the advanced technological abilities or a skilled labor force of a Japan, a Germany, or a United States. There are also currency adjustments necessary by both these less advanced and even more advanced countries to conform to the world’s reserve currency (the American dollar so far) among myriad other adjustments that go into export pricing. We agree to trade rules (with varying results) to try to keep a lid on government subsidies to the pricing of exports, dumping etc.

So comes now Trump playing his base with announcements of tariffs on goods from both friend and foe which are wreaking havoc in our delicately-framed international and our domestic markets. Not only does such an announcement roil international markets, it roils domestic markets as well and, of course, has attracted countervailing tariffs from both friend and foe, thus making for higher domestic prices for such imports Americans must pay. For instance, the enormous soybean market with its shiploads of American soybeans to China has now been supplanted by soybeans from Argentina and Brazil, and Trump has now come up with a $12 billion dollar plan to pay off soybean farmers, an internal subsidy to be paid for by the rest of us, thus aggravating the situation, and inviting other such interests (cheese, booze, cars and others) to come to Trump and  Congress on bended knee and beg for their subsidies as well, to be paid for by the rest of us (and since we refuse to tax the rich, added to our national debt).

We are not only going to pay much higher prices for our imports, we are going to run up our national debt which we and our children’s children must pay someday (with increasing interest), and when our tariff payoffs are added to the some $1.9 trillion Trump and Ryan added to our national debt with their tax law for the superrich passed recently and more billions or trillions to be added as the cheese and booze and car and others’ lobbyists extract their subsidies from our till, you can expect speedier inflation rates, more unemployment in our export industries (which account for a substantial piece of our GDP), a huge bump in our national debt (especially with a CBO report just last week that our current fiscal year budget will be one trillion short and thus added to our national debt of some $23 trillion). You may also expect Moody’s and other rating agencies to take a new look at the stability of our debt market, and be subjected to the usual hue and cry from China and Russia that the dollar as the world’s reserve currency (since Bretton Woods in 1944) must end in favor of a “basket of currencies” (read a reserve currency dominated by China or Russia).

So what’s the good news with Trump’s tariff games? For us, there isn’t any. None.     GERALD       E

 

 

 

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